Life Insurance Ch 3 Life Insurance Basics

Which of the following is NOT an example of a business use of Life Insurance? A Buy-sell Funding B Executive Bonuses C Key Person D Workers Compensation

Workers Compensation - Workers Compensation is a benefit payable when a worker is injured by a work-related injury, regardless of fault or negligence. It is not considered a business use of insurance.

Which is the primary source of information used for insurance underwriting? A Applicant interviews B Medical records C Private investigations D Application

Application - The application contains most of the information used for underwriting purposes. This is why its completeness and accuracy are so crucial.

Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a A Backdated receipt. B Warranty. C Premium receipt. D Statement of good health.

Premium receipt. - When collecting the initial premium, the agent should issue the applicant a premium receipt.

During replacement of life insurance, a replacing insurer must do which of the following? A Guarantee a replacement for each existing policy B Designate a new producer for a replaced policy C Send a copy of the Notice Regarding Replacement to the Department of Insurance D Obtain a list of all life insurance policies that will be replaced

Obtain a list of all life insurance policies that will be replaced - The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.

Which of the following is the best reason to purchase life insurance rather than annuities? A To create regular income payments B To liquidate a sum of money over a lifetime C To create an estate D To liquidate a sum of money over a period of years

To create an estate - With insurance, the death benefit creates an immediate estate should the insured die.

At times, it is possible for a life insurance agent to affect a savings of premium rates by backdating an application for life insurance. What is the maximum amount of time that an application may be backdated? A One year B It is not allowed. C It varies from insurer to insurer. D 6 months

6 months - No policy in this state can take effect more than 6 months prior to the original application date, therefore allowing an agent to backdate a policy applicant's age if his/her birthday was less than 6 months ago.

The term "illustration" in a life insurance policy refers to A A presentation of nonguaranteed elements of a policy. B A depiction of policy benefits and guarantees. C Pictures accompanying a policy. D Charts and graphs.

A presentation of nonguaranteed elements of a policy. - The term "illustration" means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? A Company is the owner, but the executive pays the premium. B Board of directors is the owner, and the board of directors pays the premium. C Company is the owner, and the company pays the premium. D Executive is the owner, and the executive pays the premium.

Executive is the owner, and the executive pays the premium. - Executive buys the policy and pays the premium, and the employer reimburses the executive for cost (or pays a bonus in the amount of the premium). Since the executive is receiving compensation, the amount paid by the employer would be considered taxable income.

Which of the following would describe a legal document which would dictate who can buy a deceased partner's share of a business and for what amount? A Profit and loss agreement B Key person agreement C Split dollar agreement D Buy-sell agreement

Buy-sell agreement - A Buy-Sell agreement (also referred to as a business continuation agreement) is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

Attempting to determine how much insurance an individual would require based upon their financial objectives is known as A Needs approach. B Human life value approach. C Estate planning. D Viatical approach.

Needs approach. - Needs method determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.

Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach? A Expenses B Estimated longevity C Outstanding debt D Mortgages

Estimated longevity - There are four main types of information that an insurer needs to obtain in order to determine the value of someone's life: debt status, income, mortgage, and expenses. Longevity is not a factor in the personal financial planning process.

Who makes up the Medical Information Bureau? A Insurers B Hospitals C Former insured D Physicians and paramedics

Insurers - The Medical Information Bureau is made up of insurers so the companies can compare the information they have collected on a potential insured with information other insurers may have discovered.

A key person insurance policy can pay for which of the following? A Hospital bills of the key employee B Costs of training a replacement C Loss of personal income D Workers compensation

Costs of training a replacement - A key person insurance policy will pay for costs of running the business and replacing the employee.

Which of the following premium modes would result in the highest annual cost for an insurance policy? A Monthly B Quarterly C Semi-annual D Annual

Monthly - If the policyowner chooses to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premium to invest for a full year, and the company will have the additional expenses in billing the premium.

What describes the specific information about a policy? A Illustrations B Buyer's guide C Producer's report D Policy summary

Policy summary - A policy summary describes the features and elements of the specific policy for which a person is applying.